Chinese Economy Shrinks 6.8% in Q1 Amid COVID-19 Crisis

  • China GDP falls for the first time since 1992
  • Industrial production down 8.4% for Q1, down 1.1% in March
  • Unemployment improves slightly to 5.9% in March from Feb record high

The Chinese economy contracted 6.8% in the first quarter of the year from the same period last year, according to the National Bureau of Statistics. Analysts polled by Reuters were expecting it to shrink 6.5%. The Wall Street Journal said this is the first contraction since Beijing began reporting quarterly GDP in 1992.

The first case of COVID-19 was detected in the country’s Wuhan region and it has so far seen over 83,000 cases, according to John Hopkins University. Investors are closely watching its economic recovery for clues on what may take place in other badly-hit countries.

Industrial production was down 8.4%, but it showed signs of improvement in March with the decline narrowing to 1.1%. Retail sales of consumer goods was down 19% and international trade fell 6.4% in the quarter. The unemployment rate in urban areas reduced 0.3 percentage points in March from the record high of 6.2% in February.

“The last time we saw such a big contraction was back in 1967 when China saw the economy shrink -5.8% during the Cultural Revolution,” said ING Chief Economist Iris Pang. “We expect a 20bp cut in the 1Y Loan Prime Rate on 20 April. Apart from that, there will be more targeted RRR cuts, which should focus on inclusive finance so that SMEs, which are employers of many workers, can get loans from banks.”

The IMF projects that the country’s GDP will grow 1.2% this year, a drop from the 6.1% expansion in 2019, and rebound sharply in 2021 by 9.2%.

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